I really appreciate the advice given in the Forums and just looking for some opinions on our own "can I afford this house?" question.

My husband and I live in LA and have two young toddlers. We like our current neighborhood, but would like to move to an area with better schools. We have some flexibility on the timing and can wait for the "right house" (SFH, good school district, minimum 3BR, 2BA, 1700 sq ft). If we are ridiculously lucky, we might be able to find a house with these specs for ~$1M but the vast majority of houses look more like $1.2-$1.3M which I'm not at all thrilled about. My husband and I are frugal and saved a lot before kids. Post-kids, money feels tight. We are not financially savvy so additional opinions would be appreciated.

A few quick facts:
We are in our mid-30s.
Very stable joint income of ~$270K/year before taxes.
Rainy day fund (cash): $60K
Additional liquid assets that could be used towards down payment: $450K
Retirement accounts (not moveable): $375K
Another $80K in non-liquid investments that we don't want to touch.

Current house:
B/c of the real estate market, we'd have to buy a house before we sell current house. It should sell quickly and we have significant equity to recoup money spent. We put $170K down when we bought and the house has appreciated at least $230K in value, possibly as much as $475K if you believe Zillow (I don't).

Am I missing something? You have $450k that you can use towards a down payment. And another $400k (170+230) of equity in your home, possibly more, that you could apply towards you mortgage as soon as you sell your current home. So you have $850k you can apply pretty much immediately to a $1.3 million dollar home, leaving you with a mortgage around $500k, which would keep your housing expenses about the same if not lessen them.

After all this, you still have almost $500k of investments/retirement funds left AND a stable $270k/income, not to mention nearly $1M of equity in your new home. All in your mid-30s.

Not only does this seem like you can easily afford the home, it's almost bordering on one of those subtle humble brag threads we see once in while on these forums

Am I missing something? You have $450k that you can use towards a down payment. And another $400k (170+230) of equity in your home, possibly more, that you could apply towards you mortgage as soon as you sell your current home. So you have $850k you can apply pretty much immediately to a $1.3 million dollar home, leaving you with a mortgage around $500k, which would keep your housing expenses about the same if not lessen them.

After all this, you still have almost $500k of investments/retirement funds left AND a stable $270k/income, not to mention nearly $1M of equity in your new home. All in your mid-30s.

Not only does this seem like you can easily afford the home, it's almost bordering on one of those subtle humble brag threads we see once in while on these forums

+1

But I would recommend selling your current house first even though you would likely need to move someplace temporarily. Yes it would be a pain if you had to move twice but there is a lot of risk with owning two houses at once.

I don't know your local housing market but it sounds like it is a sellers market with a vengeance. If so then you might be able to sell your current place and demand a delayed closing or being able to rent back your house for while after you sell it.

We are not financially savvy so additional opinions would be appreciated.

I seem to be the resident curmudgeon who always suggests moving from an expensive area for housing reasons. The reason that I often say that is that I was living in the San Francisco Bay Area years ago when I was ready to buy my first house so I moved to a less expensive area where I could buy a house for maybe a fifth of what it would have cost in the Bay Area. That worked out very well for me financially and the quality of life where I moved was also a lot better.

You should really put that up for discussion since in most of the country you could buy a nicer house for cash and still have half a million in cash left over. If one of you had a desire to be a stay at home parent that would likely be possible and between lower taxes, no mortgage payment, no daycare you might have more disposable income with just one person working in a reasonable cost of living area.

I don't know your local housing market but it sounds like it is a sellers market with a vengeance. If so then you might be able to sell your current place and demand a delayed closing or being able to rent back your house for while after you sell it.

I think the part that I bolded needs extra emphasis. IF the LA market is even a fraction as hot as the Bay Area then OP don't take this advice. You could find yourself living in a rental for a long time and/or find yourself locked out of the housing market and having to follow Watty to a LCOL area.

I recently sold my home in the Bay Area and am on my way out after over 20 years here. Yes, you can do rent back (I'm doing it) but even in a hot sellers market then longer than 29 days becomes trickier and will reduce the number of offers (which may or may not negatively impact your selling price). Even if you get 3 months rent back it may not be enough to find a house you want in the area you want.

How is the inventory? Are there a lot of units for sale or are there very few? That might push it even further to buying first and then selling.

I seem to be the resident curmudgeon who always suggests moving from an expensive area for housing reasons. The reason that I often say that is that I was living in the San Francisco Bay Area years ago when I was ready to buy my first house so I moved to a less expensive area where I could buy a house for maybe a fifth of what it would have cost in the Bay Area. That worked out very well for me financially and the quality of life where I moved was also a lot better.

And there are plenty of us who made a life in the Bay Area and were very, very well compensated for it. You have no idea of what the OP does or why they want to live in HCOL LA and yet here is the suggestion to pull up stakes and give up their life. A recurring theme here on Bogleheads.

Am I missing something? You have $450k that you can use towards a down payment. And another $400k (170+230) of equity in your home, possibly more, that you could apply towards you mortgage as soon as you sell your current home. So you have $850k you can apply pretty much immediately to a $1.3 million dollar home, leaving you with a mortgage around $500k, which would keep your housing expenses about the same if not lessen them.

After all this, you still have almost $500k of investments/retirement funds left AND a stable $270k/income, not to mention nearly $1M of equity in your new home. All in your mid-30s.

Not only does this seem like you can easily afford the home, it's almost bordering on one of those subtle humble brag threads we see once in while on these forums

Agreed. You can absolutely afford a $1.3m home if that's what you decide is the right thing for your family.

B/c of the real estate market, we'd have to buy a house before we sell current house. It should sell quickly and we have significant equity to recoup money spent.

You'd have to find a lender for the new house who is willing to work with you which may or may not be possible. Several friends and co-workers with more income than you in my VHCOL area have had to either be in escrow on the old house or have a 1 year rental agreement signed in order to get financing and close on their new house. It is common here for people in your situation to sell the old house, move into a rental or with family, then buy a new house. Sometimes a rent back is possible (I've seen up to 6 months). Your situation may be different.

I really appreciate the advice given in the Forums and just looking for some opinions on our own "can I afford this house?" question.

My husband and I live in LA and have two young toddlers. We like our current neighborhood, but would like to move to an area with better schools. We have some flexibility on the timing and can wait for the "right house" (SFH, good school district, minimum 3BR, 2BA, 1700 sq ft). If we are ridiculously lucky, we might be able to find a house with these specs for ~$1M but the vast majority of houses look more like $1.2-$1.3M which I'm not at all thrilled about. My husband and I are frugal and saved a lot before kids. Post-kids, money feels tight. We are not financially savvy so additional opinions would be appreciated.

A few quick facts:
We are in our mid-30s.
Very stable joint income of ~$270K/year before taxes.
Rainy day fund (cash): $60K
Additional liquid assets that could be used towards down payment: $450K
Retirement accounts (not moveable): $375K
Another $80K in non-liquid investments that we don't want to touch.

Current house:
B/c of the real estate market, we'd have to buy a house before we sell current house. It should sell quickly and we have significant equity to recoup money spent. We put $170K down when we bought and the house has appreciated at least $230K in value, possibly as much as $475K if you believe Zillow (I don't).

Thanks in advance for your thoughts.

You definitely can afford the house, but I don't encourage buying it. Long term it will cost you more in taxes, maintenance, etc.

I recently sold my home in the Bay Area and am on my way out after over 20 years here.

Was the housing cost a big factor in you deciding to leave the Bay Area?

Not really, I retired early and have plans to go elsewhere. Even with the personal reasons to go elsewhere there is still a lot of love for the Bay Area - it's an incredible place with a huge mixing of people and cultures and a lot of opportunity. The money from the house is nice but it's a fraction of what I made working in the Bay Area.

You can't really trust the Zillow prices and not just because they are always high, they are just as often too low. I've seen plenty of cases of both. What you could do to estimate the price of your current home is to look at https://www.mlslistings.com for completed listings near you. Look for reasonable comparables and the more recent the better. Then use the price/ft^2 for each of them and use that against your own property size. You may need to adjust for features you have that the comps don't or vice versa. Plus depending on how hot the market is and how old the comps are you may need to inflate the price some. This won't be exact but it is a decent ballpark for preliminary planning purposes.

We lived all over the country but I think it's very hard for people who haven't lived in a VERY high cost-of-living area to understand why people pay what they do. And the associated compromises and risks one takes.

People do "crazy things" to live and commute in these places.
VHCOL are very fun places if you have very solid incomes or/and an "adapted financially lifestyle" one finds find acceptable.

Yes you need to do this. Yes you can afford it.
The Bay Area & the LA area will continue to at least lead the economy I believe. In spite of some structural things that are business-unfriendly, which cannot be discussed here...
After 11+ years --- we never once regretted stretching for an expensive(to us) home in the East Bay. After each year it looked more affordable and became less of a burden regardless of then-current likely sale price.

You will have enough equity so the risk will not kill you. You might even end up (temporarily?) underwater at some point. No control on that so let go.
You may be accepting a two income family for the foreseeable future. Make sure you both have disability-life insurance, If not employer provided.

Schools were primary, for us. But equally important was the commute the commute the commute; Did I say commute?
FInally, you're betting on the California economy. It's a reasonable thing amazingly to make that bet. Provided you're committed to the long-term. 10-15 years.

Currently live in a lower cost rustbelt great lakes area. Lovely here but families can't consistently find jobs for their kids that are commensurate. That was not an issue in Cali.if you have income or a proper attitude coastal Cali is nice. The Cali-unique factors drive a nice economy for some folks.

California is truly truly "different".(I've lived or worked in 11 States (so far) and "field"-based jobs took me to very-local businesses in like 20 other states...if that helps frame my comments, and no (coastal) Cali was not my "favorite"...no simple answer)

LA homeowner here. It seems like you have enough equity in your current home to simply use that equity as your down payment for your new home without liquidating any other assets. You could put more money down if you wanted, but with interest rates where they are it’s probably not advisable, but that depends on your risk tolerance. Also, if you just bought a $1.3 million home and put the $400k of equity from your current home as a down payment, you’d have a $900k loan. If you chose to do an interst only loam you could get a rate of around 3.3% which would only yield a monthly payment of about $2,500, less than what you pay today. Sure you’re not building equity but you can always pay down principal if you choose to.

One thing I’d definitely advise on is if you think you’ll only be in this house for 10 years or less and you don’t want to use it as a rental when you move out, don’t do a 30 year mortgage. Do a 7 or 10 year product, whether amortizing or IO.

I appreciate all the advice. It is terrifying for us to think about having so much of our money locked into a house, especially if the real estate market were to tank. We have also seen real estate prices climb tremendously in the last year, so are nervous if we wait too long, we'll get priced out for real. Husband grew up in the mid-West in an area where there isn't anything even for sale above $200K, so I think for us the thought of spending out so much when kids also cost so much and we'd have less wiggle room financially feels terrifying. The additional perspectives are helpful. THANK YOU!

Am I missing something? You have $450k that you can use towards a down payment. And another $400k (170+230) of equity in your home, possibly more, that you could apply towards you mortgage as soon as you sell your current home. So you have $850k you can apply pretty much immediately to a $1.3 million dollar home, leaving you with a mortgage around $500k, which would keep your housing expenses about the same if not lessen them.

After all this, you still have almost $500k of investments/retirement funds left AND a stable $270k/income, not to mention nearly $1M of equity in your new home. All in your mid-30s.

Not only does this seem like you can easily afford the home, it's almost bordering on one of those subtle humble brag threads we see once in while on these forums

It's reassuring to hear you say we can afford it. I think mainly afraid of locking so much of our money into a house. If it ends up being another bubble, would we survive? I've also seen other housing posts where unanimously discouraged from buying. So it's helpful to hear it doesn't seem crazy to do this.